In the first part of the three-part virtual 2021 Kagan Media Summit, S&P Global Market Intelligence Senior Research Analyst and moderator Justin Nielson presented an industry overview that included projections for TV stations and other segments, outlining the future outlook for broadcasters.
The June 17 event focused on how returning from the pandemic will impact the TV industry, as well as on topics related to political advertising, retrans, M&A, core advertising, over-the-top and NextGen TV.
Many of the top broadcast industry trends were highlighted in Nielson's opening overview, featuring data-focused graphics to visualize the latest S&P Global Market Intelligence research. Some of the highlights include:
- TV station group stocks are bouncing back post-pandemic based on new ad models, services and ventures.
- Radio stocks continue to underperform, except for companies heavily involved in digital.
- TV station total revenue projections show an expected decline of 2.3% in 2021, with TV ad pacings marginally better this year.
- The automotive ad category has been lagging due to chip shortages and production shortfalls.
- Second half 2021 ad pacings are expected to improve.
- Core national spot advertising growth is expected to rebound to 16.0% in 2021. Digital growth is expected to reach 9.0% in 2021.
- Radio ad revenue is forecast to rebound after a 23.0% decline in 2020 to grow 8.4% in 2021.
- Radio's digital segment should grow 6.0% year over year in 2021.
- Political projections are looking up after an exceptional 2020. Fundraising is way ahead of pace.
- First-quarter 2021 retrans revenue grew 10.3% year over year.
- Retrans per-sub rates on a station/network basis grew 19.5% year over year in first quarter 2021.
- Retrans revenue is expected to grow to $15.20 billion by 2026, driven by rate hikes in renewals and growth of virtual subs.
TV station core advertising trends
In an interview with Sinclair Broadcast Group Inc. President and CEO Chris Ripley, Nielson focused on many topics facing Sinclair and the TV industry in the coming months.
The pandemic hit advertisers hard, with many ad categories pulling back. Many advertisers delayed campaigns or cut budgets. Kagan forecasts TV station local core ad revenue to bounce back from 29% of total TV revenue in 2020 to 33% by 2026.
"The core advertising market is set up for an incredible growth streak," said Ripley. In March, April and May of 2020, Sinclair was down more than 40% year over year. The company then saw sequential growth. However, some categories of businesses are not yet completely open, and the auto chip shortage is hurting the auto ad segment. "When you factor in the recovery from the pandemic and the eventual right-sizing some of these supply/demand dynamics, overall core advertising is set up for an incredibly strong run," Ripley said.
Taking a look at national versus local advertising recently, Ripley sees national strengthening, with the bigger companies still spending while many small local businesses are not fully open yet.
With the improved NextGen TV standard rolling out nationally, there has been broadcaster buzz about the potential to use its interactivity to drive sports betting during live events. According to Ripley, the sports betting ad category doubled between the third and the fourth quarters of last year and almost doubled again sequentially in the first quarter of 2021.
"A year ago, the category was next to nothing, and as it develops it will be a significant category unto its own," said the CEO. For Sinclair, service ad categories have been a strong point, while other services such as restaurants, movie theaters, entertainment, travel and retail are still recovering from pandemic-related hardship.
2022 political ad outlook
For Sinclair, one of the biggest U.S. broadcast station groups, political advertising revenue will not be material until October 2021. However, Sinclair expects a strong political season with intensive political advertising during the midterms. "If the Georgia runoff was any indication of how much money will be at stake here, it's going to be substantial," said Ripley.
Our most recent political projections have political advertising revenue reaching $3.25 billion in 2022, a 7.0% increase from the $3.04 billion spent in the 2018 non-presidential election year. After an exceptional political year in 2020 that saw political advertising surpass expectations largely due to the Georgia runoff, our outlook for the segment points to growth again in 2022.
While digital and social media political advertising impacted TV's share in some of the last election cycles, the 2020 election saw a return to the TV side as some social media platforms such as Facebook Inc. placed restrictions on political ads. Ripley believes that trend will continue, based on TV's historical success a way of getting messages out to voters. "While call-to-action-type avenues such as Facebook, Google, etc., are pulling back from this area, that should leave more money to be allocated to places like broadcast," said Ripley.
Multichannel service provider churn, cord cutting
The pandemic was particularly hard for U.S. multichannel providers as subscriber losses accelerated in first quarter 2021, with more than 1.9 million subs lost during the period. The impact of OTT streaming services has been the biggest driver of cord cutting.
Economic uncertainty is likely to exacerbate multichannel churn. Sinclair's churn rate has improved from COVID-19-related lows, said its CEO, but cord cutting is likely to continue.
The company has invested heavily in direct-to-consumer products, including its STIRR streaming OTT service and a soon-to-launch app for its regional sports networks. It hopes incremental revenues from direct-to-consumer services will offset churn-related revenue loss on traditional TV platforms. The Ballys Sports App, utilizing Bally's Corp.'s integrated sports betting technology, is expected to launch in the first half of 2022.
"It's more than just delivering the games in an OTT environment. It's really about giving people a whole metaverse around sports for them to interact with fans that have self-selected to the teams that they like, and giving them opportunities to engage in different types of content such as short-form highlights and gamification," said Ripley. Ripley emphasized that the analytics from these digital platforms open many opportunities for increasing engagement and revenue.
Sinclair's STIRR service has also been successful since its launch in January 2019. "It grew like a weed through COVID — usage exploded," said Ripley. Ad-supported OTT TV is a fast-growing area for television, with competition from Roku Inc. and ViacomCBS Inc.'s Pluto TV. "The vast majority of the viewing is on the local channel," said Ripley, pointing out some of the biggest takeaways from the STIRR OTT service.
NextGen TV — ATSC 3.0
The new broadcast standard has been launching on TV markets across the U.S. for more than a year, but the implementation stalled because of the pandemic. That broadcast signal upgrade is once again picking up as the pandemic comes closer to its end.
Over-the-air TV viewing has been poorly monetized by broadcasters. However, NextGen TV aims to bridge that gap with interactivity, targeted advertising, subscription TV models and a larger variety of content. The new standard also provides alternative uses for the spectrum such as GPS location and datacasting. "Having ultra-low-latency, high-quality video being distributed for live events will be a key component in making sports betting on live events possible," said Ripley.
Approximately 25 markets were live with ATSC 3.0 broadcasts as of the end of May and another four had submitted applications as of March 2021. U.S. broadcast television providers backing the new standard aim to have about 50% to 60% of TV households in the U.S. live with NextGen TV by year-end. "Hopefully the year after that we will be approaching 100%," said Ripley. "But getting the distribution side up and running in every market is a key milestone to making NextGen TV viable."
Broadcast Investor is a regular feature from Kagan, a media research group within S&P Global Market Intelligence's TMT offering, providing exclusive research and commentary.
This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.